One of Australia’s oldest and most notorious prisons could be sold off to make room for thousands of new homes under a plan proposed by the state opposition.

Long Bay Correctional Complex in Malabar in Sydney’s south locks up 1200 prisoners and has housed the likes of backpacker killer Ivan Milat and and crime boss Tilly Devine over its 116-year history.

A bold $3 billion plan would see the site bulldozed to build up to 12,000 homes if the opposition is elected in 2027.

Long Bay Jail houses 1200 inmates in Sydney’s south. (A Current Affair)

NSW Opposition Leader Mark Speakman said Long Bay could help answer the state’s housing crisis.

“We want to turn the relic of [the] past into hope and homes for the next generation,” Speakman said today.

“We know there will be a surplus from this proposal that will be available to reinvest in local schools, in local hospitals if that’s necessary, in open spaces and local roads and in providing public transport.”

About 30 per cent of the development would be for social and affordable housing.

Current inmates wouldn’t move until a new facility was built.

Illawarra on the NSW South Coast has been flagged as a possible location for a new correctional complex.

NSW Premier Chris Minns said new homes in Sydney should be built near public transport hubs.

Skeleton staff remain on site at Long Bay Jail, one of the state's highest security prisons. Corrective Services have said there is no public safety risk.Long Bay is one of the state’s highest security prisons. (AAP)

“There’s no train station at Long Bay, there’s no train station at Maroubra,” Minns said.

“If we’re going to build and have more density closer to the city, it’s got to be on public transport lines otherwise we just keep repeating the mistakes of the past.”

In response, opposition transport spokeswoman Natalie Ward said a Liberal government would prioritise public transport options if Long Bay was transformed into new housing.

“We will look at future transport options, but that from day one, as we’ve done on the Northern beaches, that there will be a rapid express bus line service to get them to jobs from here to Kingsford and into the city,” Ward said.